Talks to privatize Pennsylvania Lottery management extended

By Mark Scolforo and Marc Levy

Associated Press

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HARRISBURG – A potential deal to privatize management of the Pennsylvania Lottery was put off for an additional 10 days on Monday after Gov. Tom Corbett and a British company agreed to extend negotiations.

Hours before the $34 billion bid by Camelot Global Services PA LLC was set to expire, Corbett’s Revenue Department announced the bid was extended until Jan. 10.

The Revenue Department said the additional period would provide sufficient time for the lottery workers’ union to submit a proposal of its own. The state also is waiting for a risk mitigation consultant’s report about whether Camelot is a suitable manager, and state lawmakers have raised questions about the proposal.

Camelot, which runs the national lottery in the United Kingdom and is a consultant to the California Lottery, is pledging to generate at least $34 billion in profits over a 20-year contract. The company released a statement Monday that said it hoped to retain “as many current lottery employees as possible” and that it intended to incorporate and locate all operations in Pennsylvania.

Camelot’s plans include introducing keno to bars and restaurants, expanding the number of lottery retailers, improving the portfolio of games and changing marketing strategies to capture a broader spectrum of lottery players, particularly those in higher income households.

Some Democratic lawmakers and anti-gambling Republicans have raised opposition to the idea, while Auditor General Jack Wagner, a Democrat, has questioned the wisdom of awarding such a large contract to a sole bidder. In addition, state Treasurer Rob McCord, a Democrat, has said he may not pay Camelot unless its plans to expand lottery gambling are clearly legal.

The Senate Finance Committee has announced a Jan. 14 hearing to review the proposed plan, and Corbett administration and Camelot officials say they are willing to testify.

The union, Council 13 of the American Federation of State, County and Municipal Employees, filed a Dec. 17 lawsuit challenging the governor’s authority to award the contract and expand the scope of lottery gambling without legislative approval.

Camelot’s bid over the contract’s first 10 years is an estimated $500 million to $1 billion more than what could be achieved by the state employees who currently run the lottery, Secretary of Revenue Daniel Meuser has said.

In a news release Monday, the Revenue Department said a second bid extension will be negotiated by the state and Camelot if, after the union proposal and “probity report” are submitted, “a private management is determined to be in the best interest of protecting and growing lottery funding.”

Only two other states – Illinois and Indiana – have hired private companies to manage their lotteries.

The value of the Pennsylvania Lottery contract to Camelot will be hundreds of millions of dollars in management fees and potential incentives for exceeding its profit guarantees. If Camelot were to fall short of an annual profit guarantee, the state could dip into a Camelot cash reserve to offset it, but only up to 5 percent of the annual profit.

The 41-year-old Pennsylvania Lottery is one of the nation’s largest. It recorded $3.5 billion in sales for the year that ended June 30 and contributed more than $1 billion in profits to benefit programs for the elderly, including transit, rent and property tax rebates, prescription drug assistance, senior centers and long-term care services.